Central Asia: Study Highlights Obstacles To Development Of Small Businesses

A new study by a leading international organization reveals the many obstacles to the development of small and medium-size businesses in Tajikistan. Among other things, the survey shows the majority of Tajik entrepreneurs routinely pay bribes to the tax police and bank officials. And as RFE/RL reports, Tajikistan's situation is not unique in Central Asia.

Prague, 17 February 2004 (RFE/RL) -- Corruption in Central Asia is often characterized as systemic, a legacy of the Soviet era, when bribes were a viable means for citizens to persuade bureaucrats to perform their jobs.

Omurbek Abdyrakmanov is a Kyrgyz businessman in Bishkek. He says, "We [businessmen] are telling [the Kyrgyz government]: 'Please, give them more money. Pay them better salaries. Make sure [your staff] does not get hungry.' A hungry official is more dangerous than a terrorist."

The International Finance Corporation (IFC) is a member of the World Bank Group, which promotes private sector investment in developing countries. The IFC recently conducted a survey in Tajikistan in which 98 percent of the 2,000 entrepreneurs interviewed admitted to paying bribes -- or what the IFC prefers to call "unofficial payments" -- to tax officials. Twenty-five percent of those who had received bank loans said they had to make such payments to bank employees.

The IFC plans to release its report on the administrative barriers confronting small and medium-sized businesses in Tajikistan next month. Preliminary results of the survey were discussed at a conference in Dushanbe last week. The IFC declined to speak to RFE/RL until the full report is released.

Stian Christensen is the program officer in charge of the Commonwealth of Independent States (CIS) at Transparency International in Berlin. He says he is not surprised by the results of the IFC survey, saying such problems are the norm in Central Asia.

Transparency International issues annual surveys based on how corrupt a country's politicians and public officials are perceived to be by business people, analysts, and citizens. Its latest Corruption Perceptions Index, released in October, finds the Central Asian states at the bottom of the heap.

Kazakhstan and Uzbekistan ranked 100th out of 133 nations, Kyrgyzstan 118th, and Tajikistan 124th. Turkmenistan was not included in the index because of a lack of data.

Last year, Kazakhstan and Kyrgyzstan set up agencies for fighting corruption. But Christensen says the rhetoric of Central Asian governments about fighting corruption rarely translates into action.

"There's a lot of commitments to the fight against corruption, and all these commitments are followed up by no action. There are no clear cases of a country that has experienced a drop in corruption related to government initiatives to curb it," Christensen said.

Christensen notes a tendency in Central Asia to view the fight against corruption as a fight against individuals rather than against a flawed system in need of structural reforms.

Andrew Wilson is senior program officer for Eastern Europe and Eurasia for the Center for International Private Enterprise in Washington, D.C. The center is an NGO that conducts programs in Central Asia to help strengthen the role of the private sector in promoting democracy and economic reform.

According to Wilson, the legal and regulatory environment in Central Asia allows tax collectors to freely collect bribes from entrepreneurs. Meanwhile, what he calls the region's "unreasonable" tax systems force businesses to bribe tax inspectors in order to receive more favorable rates.

"In many cases, if the tax inspectors were to enforce the law to its full extent, businesses wouldn't even be able to make a profit. So it's almost a matter of necessity for them to bribe these officials," Wilson said.

Wilson says Central Asian governments need to take a hard look at tax and other regulatory codes. Procedures involving tax inspections also must be reviewed.

"More guidelines need to be drawn up to make sure that tax inspectors can't visit a business every month for the purpose of collecting a bribe. And the tax codes need to be simplified -- and in many cases reduced -- so businesses can afford to comply with the law. It means reducing the number of taxes -- not necessarily reducing the taxes themselves -- but also making it more difficult for tax inspectors to apply this code [at their own discretion]," Wilson said.

"There's a lot of commitments to the fight against corruption, and all these commitments are followed up by no action."

The licensing process is another issue tackled by the IFC survey. More than 50 percent of Tajik business people said it is difficult to get proper information about licensing. More than 43 laws and 41 other documents regulate the licensing process in Tajikistan.

Wilson says governments need to look at the variety of licenses that businesses must apply for, as well as the costs and the waiting time associated with them.

"A bureaucrat can very easily hold up a licensing process and make it very difficult and time consuming for a businessman to try to acquire all the licenses. So, reforming a system that would say that a bureaucrat must issue a license by a certain time [is needed]. If they don't issue the license, there has to be clear reasons," Wilson said.

The IFC survey points out that registration is an expensive process for Tajik entrepreneurs. Small and medium-size enterprises spend, on average, $162 for registration, which is 95 percent of the per capita gross domestic product (GDP).

Christensen notes that it is a deliberate policy of governments in the region to require large numbers of licenses in order to make as much money as possible.

"If you want to reduce the [number] of licenses that you need to open a business, you will make it a lot more likely that people will start businesses. But you're also going to reduce the potential income of people in government structures who benefit from these licenses," Christensen said.

Wilson and Christensen agree that corruption and high registration costs are obstructing the development of smaller and newer enterprises in the region. And in the end, they say, such costs are passed along to consumers.